How Should I Choose a Credit Card?

It seems like there’s an inexhaustible supply of options when you are trying to choose a credit card. Card companies may routinely bombard your mailbox with offers of credit. It doesn’t make sense to just choose the first offer you get — in fact, you can benefit from some careful shopping around to secure the card that is best fitted to your purposes and least expensive.

Standard credit cards usually come with a credit limit (though this many not apply to American Express®), an offer of credit based on interest rate, and fees or possible benefits for using a certain card. Some benefits offered include accrual of frequent flyer miles, small cash back offers on purchases, insurance on purchases made, ability to receive or purchase gifts with an accumulation of credit card points, "keep the change" programs where your change is placed in a savings account, or donations to favorite charities when you use your card. Some of these can sound very attractive when you choose a credit card, but make sure that you aren’t paying more for them in higher interest rates.

You should always weigh interest rate, or APR (annual percentage rate), and determine how interest is accrued. Some cards use what is called a double billing method. This means that your monthly payment is not deducted when considering interest. Other cards apply interest to the card based on what you owe at the end of the month after your bill is paid. In general, to save money, you may want to not choose a credit card with a double billing method.

When you choose a credit card, you should really evaluate any introductory interest rate offers. Sometimes a card offer seems great on the surface, offering you credit for up to a year with no interest rate. Be sure to find out what the APR is when the interest rate kicks in, or if there are exclusions where you may be charged interest despite the introductory fee, like if you use your card to take out cash. On the other hand, if you currently have a card with a higher interest rate, and a company offers you a 0% rate on transferring money from another card, this can be a great way to pay down your debt without being charged more interest.

Another thing you should assess, and this especially applies to people with lower credit scores, is the amount of fees you may be charged. These can be hefty, with people spending a registration or sign up fee of over $100 US Dollars (USD), and then yearly fees to maintain the card. It’s a good idea if your credit is already in poor shape to not choose a credit card with high fees or high annual fees. Remember that some of the convenience of a credit card can now be had with debit cards too, which often bear the VISA or MC symbol. Or you can use a deposit-based credit card, where your credit limit is determined by what you deposit into your account. Again, consider any fees since an ATM card offers you basically the same convenience.

With good credit, it pays to shop around and evaluate different offers and interest rates. Typically, low interest rates are best especially if you don’t pay your card off fully at the end of the month. If you want to commit to not having a balance, certain cards are available on a monthly pay-off only basis. They have no credit limit, but they do require you to pay your full balance each month. If you can manage this, it’s great for your credit score, though you typically have to have a good credit score to obtain one of these.

You will also want to analyze how a card may limit you. Department store credit cards are seldom the best choice since they are typically offered at higher interest rates. Choose a credit card that has more flexibility in spending, and pay attention to fees like late fees on payments, or low cost insurance that might take over your payments if you lose your job. In all, evaluate the costs, your spending habits, and your credit card needs, to choose a credit card that best fits your requirements.